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FDL Book Salon Welcomes Senator Byron Dorgan, Reckless!: How Debt, Deregulation and Black Money Nearly Bankrupted America

byron-dorgan-reckless.thumbnail.JPG[Welcome Senator Bryon L. Dorgan and Host, William K. Black, Associate Professor of Economics and Law, University of Missouri-Kansas City.  Author of The Best Way to Rob a Bank is to Own One – bev]   

Reckless!: How Debt, Deregulation, and Dark Money Nearly Bankrupted America (And How We Can Fix It!) 

Senator Dorgan addresses the most severe crises America needs to confront, going far beyond the specific problem he tackled in Take This Job and Ship It.  Each chapter discusses a specific set of related problems and suggests specific steps to respond to the problems.   

There is no universal theme to the book, but there is a consistent approach and tone.  The author is a prominent Democrat that is critical of the Bush administration and Congress when Republicans dominated it.  The tone of his criticism of Republicans is moderate.  The book is not a partisan screed.  Indeed, he strongly criticizes the leaders of the Clinton administration’s Treasury department.  (Those leaders continue to dominate economic policy under the Obama administration.)   His critiques combine populist roots and academic training and an accommodation of his state’s (North Dakota) interests (coal). 

The book begins with the ongoing financial crises.  Senator Dorgan’s diagnosis as to the cause is “greed.”  He discusses some institutional changes, particularly deregulation.  (Readers interested in learning why economists continue to push deregulation in the face of it causing repeated, intensifying crises can read James Galbraith’s Predatory State and Thomas Frank’s The Wrecking Crew.)  Senator Dorgan repeatedly returns to blaming “greed” in the first several chapters, which leads him to wonder why mortgage lenders would make loans to people that were unable to repay the loans.  This was the norm for nonprime lenders, yet it is (superficially) difficult to square with lender greed.  (It makes perfect sense, however, when you take into account accounting “control fraud.”  Lenders optimize accounting fraud by lending to uncreditworthy borrowers, growing massively, and using extreme leverage.  This is the unholy trinity.)

Senator Dorgan then links three deficits:  the federal budget deficit, consumer borrowing, and the trade deficit.  He argues that each deficit is unsustainable and certain to lead to a broader economic crisis.  

He returns to regulation to emphasize the problem the key role of regulatory leadership.  He cites Harvey Pitt as the exemplar of the regulator that causes his entire agency (the SEC) to fail to meet its statutory mission because he doesn’t believe in regulating.  He discusses several other examples of failed regulatory leaders and explains how it harms the public (e.g., Enron creating the California energy crisis of 2001). 

Senator Dorgan also cites Enron as an example of the creation of regulatory “black holes” that create “dark money” – opaque financial transactions that can cause catastrophic losses such as AIG’s credit default swaps (CDS).  He explains the risk that hedge funds pose because they produce “dark money.” 

The concept of dark money leads logically to his concern over the ultimate black hole – the offshore tax havens that need to be eliminated.  The hedge fund operators compound the risks they impose by securing unique U.S. tax benefits and then compounding the unfairness by taking advantage of tax havens. 

Senator Dorgan’s primary criticism of executive compensation is fairness.  He goes through the statistics that will be familiar to most readers of this site.  The unfairness is indefensible, but criminologists and economists would emphasize that modern executive compensation creates intense, perverse incentives to engage in accounting control fraud and explains why we have an “epidemic” of mortgage fraud (FBI:  September 2004). 

Senator Dorgan then changes focus and discusses how the Bush administration led the U.S. to invade Iraq and why contracting in the Bush wars was endemically corrupt.  The pattern of privatization, non-supervision, conflicts of interest, and non-accountability (particularly the failure of Congress under Republican domination to engage in oversight) proved disastrous. 

Senator Dorgan closes with three chapters devoted respectively to energy independence, health care, and limits on illegal immigration.  He’s for most forms of increased production (outside of ANWAR) if they can be done in ways that don’t trash the environment.  He also proposes a major conservation push.  He decries the costs of the current health care system and the fact that it is a leading cause of bankruptcy.  He wants to take on Big Pharma and reduce drug costs.  He is careful not to be anti-immigrant, but is strongly anti-illegal immigration. 

Overall, what are his solutions?  A smaller, more effective government that protects the citizens from powerful corporations, balances it budgets, and is not unnecessarily intrusive.

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William Black

William Black